Highlights From 2014 (and Beyond)

It’s a beautiful day for the beach. Even though some of us may be at the beach today (and if you are at the beach, why didn’t you invite us?), bankruptcy, like time, waits for no one. Wherever we happen to be, ‘tis the season for a little something light – or at least lighthearted. In the spirit of summer Fridays, we wanted to take the opportunity to bring you some of the colorful quotes that we’ve come across in bankruptcy decisions over the past few months. And for those of you who crave more: worry not – we’ll keep combing our records in efforts to bring you further installations of Bankruptcy Beach Reading as we continue to geek out over hidden gems like these!

Boy the apple doesn’t fall very far from the tree does it. You are such a lying piece of * * * *. Nobody at that table believed a word you said today. You should have had your lying piece of * * * mother coach you before you went to court. She’s a much better liar, or I should say perjurer than you are, but she had more practice also. They are not done with you. Marsha is watching both of you closely.”

Postscript: The court concluded that the text message did not constitute an attempt to collect on a debt. “Name calling, in and of itself, does not constitute debt collection as is required for a willful stay violation. . . .” The court, however, noted that the creditor “should be admonished to cease all contact with the Debtors in regard to the debt at issue.”

In this case, a creditor seeking to repossess certain property reportedly told the debtor, “F* * * the stay, I want my equipment. If you can’t handle that go work someplace else. You work for me.”

Postscript: The court, unconvinced by the defendant’s arguments that its principal was unfamiliar with bankruptcy law, finding that “a business that is involved with repossessions should be familiar enough with bankruptcy to know it should seek this Court’s assistance to obtain relief from the automatic stay, especially when served with multiple notices of the bankruptcy filing.”

Attorneys for a creditor sought to except the creditor’s debt from the debtor’s discharge. Sounds fine so far. But unfortunately, the attorney filed on paper, rather than electronically – as the court’s rules required. The judge, invoking early N.Y. Mets manager Casey Stengel, exasperatedly asked “[c]an’t anybody here play this game?” For what it’s worth, we note that some of us may be saying the same thing about more recent Mets teams. . . .

The court invoked Kafka (and the word “Kafka-esque) in describing the tension-fraught relationship between the debtor and its former attorney. In the court’s words:

Ateco’s odyssey has instead come to look more like Joseph K.’s strange trip through the legal system in Franz Kafka’s The Trial rather than any appropriate dispute resolution in the American justice system. Just as Joseph K. never really knew why he had been arrested, Ateco has been incapable of resolving a simple fee dispute for almost 10 years.

. . .

Petrovsky attempted to get explanations from Hebb about the bills and what Hebb was doing on the case. Hebb never seemed to realize that Ateco was his client and deserved a detailed billing on a regular basis without all sorts of strange abbreviations and entries making no sense. Petrovsky seemed legitimately puzzled why Hebb still did not understand his concerns after all these years. He had once had a professional relationship with Hebb and tried not to insult him, but the more he tried to gracefully remove Hebb from work on the case, the more Kafkaesque the proceedings became with Hebb chasing him. In The Trial, Joseph K told the police supervisor arraigning him for some unknown charge, “I require a clear answer to all these questions, and I’m quite sure that once things have been made clear we can take our leave of each other on the best of terms.” Franz Kafka,The Trial (David Wylie trans., Project Gutenberg eBook 2003) (1925). Petrovsky, likewise, was in search of simple answers on what fees were appropriate or how the case was going. . . .

The plaintiff sued the debtors (his half-sister and brother-in-law, respectively) to except from their discharge a debt incurred as a result of their having spent “every dime” of his money while he was in prison, including the purchase of a BMW, a Porsche, a pool table, and tickets for a cruise. In framing the issues before it, the court observed:

One of my former law partners, an estate planning lawyer by specialty, once told me, “If you want to know the strength of family ties, drop a bucketful of money between them and watch what happens.” Put another way, blood may be thicker than water, but it is often no match for the almighty dollar. As one of the great vaudevillians of the twentieth century was fond of saying, and as this case so aptly illustrates, “ain’t it the truth!”

(citing Ronald Jensen and Jimmy Durante, respectively). Of course, we at the Bankruptcy Blog are suckers for anything Durante. Indeed, given the subject matter of this Blog, we can’t resist sharing this classic advice from the Schnoz: “Be awful nice to ‘em goin’ up, because you’re gonna meet ‘em all comin’ down.”

Even though a creditor was adversely affected by the debtor’s bankruptcy filing, the court concluded that the debtor had shown no bad faith in commencing a chapter 11 case. Indeed, as Judge Posner noted, “[i]t is not bad faith to seek to gain an advantage from declaring bankruptcy—why else would one declare it?”

[Kudos to Robert Miller for submitting this one via our March Madness competition!]

The court observed that “[t]he FDIC’s circular reasoning ignores eight centuries of legal history.” We will not attempt to articulate the arguments (or the merits of those arguments here). But we’ll simply let the Fifth Circuit Court of Appeals speak for itself:

To be sure, in medieval England, a landlord had no right to enforce the covenants in a lease against an assignee of the original tenant: courts reasoned that while the original tenant remained contractually liable for his obligations under the lease ( e.g., rent), there was no enforceable contract running between the landlord and the assignee. However, as noted in the original Restatement of Property, “the inconveniences resulting from such a rule [were] manifest,” preventing both the landlord and the ultimate tenant from relying on covenants in the original lease. Hence, English courts developed the concept of “real covenants,” a concept that has carried over into American law and the laws of Texas. Real covenants are covenants that “run with the land” and can be enforced by the landlord against an assignee tenant by virtue of their “privity of estate”— notwithstanding the absence of contractual privity. However, the content of the conveyance by the original tenant to the subsequent tenant remains critical, as the subsequent tenant only comes into “privity of estate” with the landlord if the landlord can prove that the original tenant assigned away his entire interest in the lease (as opposed to a lesser-included portion, i.e., a “sublease”). The FDIC’s position, under which the landlord lacks “standing” to prove the content and effect of the conveyance between the tenants because he is not a party to the conveyance, would defeat the concept of real covenants, returning our law to that of twelfth-century England.